PENN Entertainment, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of financial condition, results of operations, liquidity and capital resources should be read in conjunction with, and is qualified in its entirety by, the unaudited Consolidated Financial Statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the Consolidated Financial Statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2023. EXECUTIVE OVERVIEW Our Business PENN Entertainment, Inc., together with its subsidiaries (“PENN,” the “Company,” “we,” “our,” or “us”), is North America’s leading provider of integrated entertainment, sports content, and casino gaming experiences. As of June 30, 2024, PENN operated 43 properties in 20 states, online sports betting in 19 jurisdictions and iCasino in five jurisdictions, under a portfolio of well-recognized brands including Hollywood Casino®, L’Auberge®, ESPN BET™, and theScore BET Sportsbook and Casino®. In August 2023, PENN entered into a transformative, exclusive long-term strategic alliance with ESPN, Inc. and ESPN Enterprises, Inc. (together, “ESPN”) relating to online sports betting within the United States. PENN’s ability to leverage the leading sports media brands in the United States (ESPN) and Canada (theScore) is central to our highly differentiated strategy to expand our footprint and efficiently grow our customer ecosystem. The Company’s focus on organic cross-sell opportunities is reinforced by our market-leading retail casinos, sports media assets, and technology, including a proprietary state-of-the-art, fully integrated digital sports and iCasino betting platform and an in-house iCasino content studio. PENN’s portfolio is further bolstered by our industry-leading PENN Play customer loyalty program, which offers our approximately 31 million members a unique set of rewards and experiences across business channels. The majority of the real estate assets (i.e., land and buildings) used in our operations are subject to triple net master leases; the most significant of which are with Gaming and Leisure Properties, Inc. (Nasdaq: GLPI) (“GLPI”), a real estate investment trust (“REIT”), and include the AR PENN Master Lease, 2023 Master Lease, and Pinnacle Master Lease (as such terms are defined in “ Liquidity and Capital Resources ” and collectively referred to as the “Master Leases”). Recent Acquisitions, Dispositions, Development Projects, and Other On February 17, 2023, we acquired the remaining 64% of the outstanding shares of Barstool Sports, Inc. (“Barstool”) common stock not already owned by us for a consideration of approximately $405.5 million, which is inclusive of cash and common stock issuance, repayment of Barstool indebtedness of $23.8 million, transaction expenses and other purchase price adjustments in accordance with GAAP (the “Barstool Acquisition”). Prior to the Barstool Acquisition, we held a 36% ownership interest, which was accounted for under the equity method. On August 8, 2023, PENN entered into a Sportsbook Agreement (the “Sportsbook Agreement”) with ESPN, which provides for a long-term strategic relationship between PENN and ESPN relating to online sports betting in the United States. Pursuant to the Sportsbook Agreement, PENN rebranded its existing Barstool Sportsbook across all online platforms in the United States as ESPN BET (the “Sportsbook”) and oversees daily operations of the Sportsbook (see Note 11, “Commitments and Contingencies” in the notes to our unaudited Consolidated Financial Statements for additional information). On August 8, 2023, we entered into the Barstool SPA, and we sold 100% of the outstanding shares of Barstool common stock. As a result of the Barstool SPA, we recognized a pre-tax loss on disposal of $923.2 million (inclusive of $714.8 million in goodwill and intangible assets write offs and a $70.0 million indemnification liability) incurred in the third quarter of 2023. See Note 5, “Acquisitions and Dispositions” and Note 14, “Fair Value Measurements” in the notes to our unaudited Consolidated Financial Statements. On February 21, 2023, as described in “Liquidity and Capital Resources,” the Company and GLPI entered into an agreement to amend and restate the triple net master lease dated November 1, 2013 (the “AR PENN Master Lease”), effective January 1, 2023, to (i) remove the land and buildings for Hollywood Casino Aurora (“Aurora”), Hollywood Casino Joliet (“Joliet”), Hollywood Casino Columbus (“Columbus”), Hollywood Casino Toledo (“Toledo”), and the M Resort Spa Casino (“M Resort”), and (ii) make associated adjustments to the rent after which the initial rent in the AR PENN Master Lease was reset to $284.1 million, consisting of $208.2 million of building base rent, $43.0 million of land base rent and $32.9 million of percentage rent (as such terms are defined in the AR PENN Master Lease). The AR PENN Master Lease remains subject to annual rent escalators and a percentage rent reset every five years. 38 Table of Contents Concurrent with the execution of the AR PENN Master Lease, the Company and GLPI entered into a new master lease (the “2023 Master Lease”), effective January 1, 2023, specific to the properties associated with Aurora, Joliet, Columbus, Toledo, M Resort, Hollywood Casino at The Meadows (“Meadows”) and Hollywood Casino Perryville (“Perryville”) and a master development agreement (the “Master Development Agreement”). The 2023 Master Lease terminated the individual triple net leases associated with Meadows and Perryville. The 2023 Master Lease incurs a 1.5% fixed escalator on November 1 of each year, and is also subject to a one-time increase of $1.4 million effective November 1, 2027. The 2023 Master Lease and AR PENN Master Lease are cross-defaulted, cross-collateralized, and coterminous, and subject to a parent guarantee. The 2023 Master Lease includes a base rent (the “2023 Master Lease Base Rent”) equal to $232.2 million and the Master Development Agreement contains additional rent (together with the 2023 Master Lease Base Rent, the “2023 Master Lease Rent”) equal to (i) 7.75% of any project funding received by PENN from GLPI for an anticipated relocation of our riverboat casino and related developments with respect to Aurora (the “Aurora Project”) and (ii) a percentage, based on the then-current GLPI stock price, of any project funding received by PENN from GLPI for certain anticipated development projects with respect to Joliet, Columbus, and M Resort (the “Other Development Projects” and together with the Aurora Project, the “PENN Development Projects”). The Master Development Agreement provides that GLPI will fund up to $225 million for the Aurora Project and, upon our request, up to $350 million in the aggregate for the Other Development Projects, in accordance with certain terms and conditions set forth in the Master Development Agreement. These funding obligations of GLPI expire on January 1, 2026. The PENN Development Projects have all commenced and are anticipated to open by the first half of 2026. We believe that our portfolio of assets provides us with the benefit of geographically-diversified cash flow from operations. We expect to continue to expand our gaming operations through the implementation and execution of a disciplined capital expenditure program at our existing properties, the pursuit of strategic acquisitions and investments, and the development of new gaming properties. In addition, the acquisition of theScore Media and Gaming, Inc. (“theScore”) and our Sportsbook Agreement with ESPN reflects our strategy to continue evolving from the nation’s largest regional gaming operator to a best-in-class omni-channel provider of retail gaming, iCasino, and sports betting entertainment. Operating and Competitive Environment Most of our properties operate in mature, competitive markets. We expect the majority of our future growth to come from our online sports betting and iCasino businesses; improvements, expansions, or relocations of our existing properties; entrance into new jurisdictions; expansions of gaming in existing jurisdictions; strategic investments and acquisitions; and cross-sell opportunities between our retail gaming, online sports betting, and iCasino businesses. Our portfolio is comprised largely of well-maintained regional gaming facilities, which has allowed us to develop what we believe to be a solid base for future growth opportunities. We continuously adjust operations, offerings, and cost structures to reflect changing economic conditions, as well as consumer demand and behaviors. We also continue to focus on revenue and cost synergies from recent acquisitions, technology enhancements, and providing customers with additional gaming and entertainment experiences through our differentiated omni-channel strategy. We seek to grow our customer database and PENN Play loyalty program through our online sports betting and iCasino businesses, the development of new properties, the expansion of existing properties and other business lines, and through partnerships with third-party partners, such as Ticketmaster Entertainment, LLC, Norwegian Cruise Line Holdings Ltd., Live Nation Entertainment, Inc., and Choice Hotels International, Inc. In addition, strategic acquisitions (e.g. theScore) and strategic relationships (e.g. our Sportsbook Agreement with ESPN), allow us to acquire new customers, expand our player database, and provide additional revenue streams, all in furtherance of our omnichannel strategy. The gaming, media, and entertainment industries are characterized by an increasingly high degree of competition among a large number of participants. We compete with a variety of gaming operations, including casinos and hotel casinos of varying quality and size and other gaming options such as state and province-sponsored internet lotteries, sweepstakes, charitable gaming, video gaming terminals at bars, restaurants, taverns and truck stops, illegal slot machines and skill games, fantasy sports and third-party internet or mobile-based gaming platforms, including both legal and illegal iCasino and sports betting operations. See the “Segment comparison of the three and six months ended June 30, 2024 and 2023” section below for discussions on our results of operations by reportable segment. 39 Table of Contents Key Performance Indicators In our business, revenue is driven by discretionary consumer spending. We have no certain mechanism for determining why consumers choose to spend more or less money at our properties or on our online offerings from period-to-period; therefore, we are unable to quantify a dollar amount for each factor that impacts our customers’ spending behaviors. However, based on our experience, we can generally offer some insight into the factors that we believe are likely to account for such changes and which factors may have a greater impact than others. For example, decreases in discretionary consumer spending have historically been brought about by weakened general economic conditions, such as recessions, inflation, rising interest rate environments, high unemployment levels, higher income taxes, low levels of consumer confidence, weakness in the housing market, high fuel or other transportation costs, low consumer confidence, and the effects of pandemics. In addition, visitation and the volume of play have historically been negatively impacted by significant construction surrounding our properties, adverse regional weather conditions and natural disasters. In all instances, such insights are based solely on our judgment and professional experience, and no assurance can be given as to the accuracy of our judgments. The vast majority of our revenues is gaming revenue, which is highly dependent upon the volume and spending levels of customers at our properties. Our gaming revenue is derived primarily from slot machines (which represented approximately 85% of our gaming revenue for each of the six months ended June 30, 2024 and 2023) and, to a lesser extent, table games, online sports betting, and iCasino. Aside from gaming revenue, our revenues are primarily derived from our hotel, dining, retail, commissions, program sales, admissions, concessions and certain other ancillary activities, and our racing operations. Key performance indicators related to gaming revenue are slot handle and table game drop, which are volume indicators, and “win” or “hold” percentage. Our typical property slot win percentage is in the range of approximately 7% to 11% of slot handle, and our typical table game hold percentage is in the range of approximately 12% to 28% of table game drop. Slot handle is the gross amount wagered during a given period. The win or hold percentage is the net amount of gaming wins and losses, with liabilities recognized for accruals related to the anticipated payout of progressive jackpots. Given the stability in our slot hold percentages on a historical basis, we have not experienced significant impacts to net income from changes in these percentages. For table games, customers usually purchase chips at the gaming tables. The cash and markers (extensions of credit granted to certain credit-worthy customers) are deposited in the gaming table’s drop box. Table game hold is the amount of drop that is retained and recorded as gaming revenue, with liabilities recognized for funds deposited by customers before gaming play occurs and for unredeemed gaming chips. As we are primarily focused on regional gaming markets, our table game hold percentages are fairly stable as the majority of these markets do not regularly experience high-end play, which can lead to volatility in hold percentages. Therefore, changes in table game hold percentages do not typically have a material impact to our results of operations and cash flows. Under normal operating conditions, our properties generate significant operating cash flow since most of our revenue is cash-based from slot machines, and table games. Our business is capital intensive, and we rely on cash flow from our properties to generate sufficient cash to satisfy our obligations under the Triple Net Leases (as defined in “Liquidity and Capital Resources” ), repay debt, fund maintenance capital expenditures, repurchase our common stock, fund new capital projects at existing properties and provide excess cash for future development and acquisitions. Additional information regarding our capital projects is discussed in “Liquidity and Capital Resources” below. Reportable Segments We have aggregated our operating segments into five reportable segments. Retail operating segments are based on the similar characteristics within the regions in which they operate: Northeast, South, West, and Midwest. The Interactive segment includes all of our online sports betting, online casino/iCasino, and social gaming (collectively referred to as “online gaming”) operations, management of retail sports betting, media, and in the prior year, the operating results of Barstool subsequent to the Barstool Acquisition on February 17, 2023 and prior to the Barstool divestiture on August 8, 2023 (as defined and discussed in Note 5, “Acquisitions and Dispositions” ). We view each of our gaming and racing properties as an operating segment with the exception of our two properties in Jackpot, Nevada, which we view as one operating segment. We consider our combined Video Gaming Terminal (“VGT”) operations, by state, to be separate operating segments. For a listing of our gaming properties and VGT operations included in each reportable segment, see Note 2, “Significant Accounting Policies and Basis of Presentation” in the notes to our unaudited Consolidated Financial Statements. 40 Table of Contents RESULTS OF OPERATIONS The following table highlights our revenues, net income (loss), and Adjusted EBITDA, on a consolidated basis, as well as our revenues and Adjusted EBITDAR by reportable segment. Such segment reporting is consistent with how we measure our business and allocate resources internally. We consider net income (loss) to be the most directly comparable financial measure calculated in accordance with generally accepted accounting principles in the United States (“GAAP”) to Adjusted EBITDA and Adjusted EBITDAR, which are non-GAAP financial measures. Refer to “Non-GAAP Financial Measures” below for the definitions of Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDAR, and Adjusted EBITDAR margin; as well as a reconciliation of net income (loss) to Adjusted EBITDA and Adjusted EBITDAR and related margins. For the three months ended June 30, For the six months ended June 30, (dollars in millions) 2024 2023 2024 2023 Revenues: Northeast segment $ 696.3 $ 688.0 $ 1,381.0 $ 1,388.5 South segment 298.2 308.3 596.7 623.1 West segment 135.3 130.0 264.1 259.7 Midwest segment 298.1 293.3 589.3 588.6 Interactive segment 232.6 257.5 440.3 491.0 Other (1) 5.9 6.2 11.9 12.0 Intersegment eliminations (2) (3.4) (8.5) (13.4) (14.8) Total $ 1,663.0 $ 1,674.8 $ 3,269.9 $ 3,348.1 Net income (loss) $ (27.1) $ 78.1 $ (142.0) $ 592.5 Adjusted EBITDAR: Northeast segment $ 204.7 $ 217.3 $ 407.3 $ 430.2 South segment 111.4 120.9 224.9 244.5 West segment 50.6 49.6 96.5 98.7 Midwest segment 129.9 127.1 246.9 252.7 Interactive segment (102.8) (12.8) (298.8) (18.5) Other (1) (26.8) (25.3) (53.6) (52.6) Total (3) 367.0 476.8 623.2 955.0 Rent expense associated with triple net operating leases (4) (154.9) (146.4) (309.7) (292.4) Adjusted EBITDA $ 212.1 $ 330.4 $ 313.5 $ 662.6 Net income (loss) margin (1.6) % 4.7 % (4.3) % 17.7 % Adjusted EBITDAR margin 22.1 % 28.5 % 19.1 % 28.5 % Adjusted EBITDA margin 12.8 % 19.7 % 9.6 % 19.8 % (1) The Other category consists of the Company’s stand-alone racing operations, namely Sanford-Orlando Kennel Club, Sam Houston and Valley Race Park, the Company’s joint venture interests in Freehold Raceway, and our management contract for Retama Park Racetrack. Expenses incurred for corporate and shared services activities that are directly attributable to a property or are otherwise incurred to support a property are allocated to each property. The Other category also includes corporate overhead costs, which consist of certain expenses, such as: payroll, professional fees, travel expenses, and other general and administrative expenses that do not directly relate or have not otherwise been allocated. Corporate overhead costs were $24.5 million and $24.8 million for the three months ended June 30, 2024 and 2023, respectively, and $49.4 million and $51.1 million for the six months ended June 30, 2024 and 2023, respectively. (2) Primarily represents the elimination of intersegment revenues associated with our retail sportsbooks, which are operated by PENN Interactive. (3) The total is a mathematical calculation derived from the sum of reportable segments (as well as the Other category). As noted within “Non-GAAP Financial Measures” below, Adjusted EBITDAR, and the related margin, is presented on a consolidated basis outside the financial statements solely as a valuation metric. (4) Pertains to the following operating leases: (i) AR PENN Master Lease; (ii) 2023 Master Lease; (iii) Margaritaville Lease; and (iv) Greektown Lease. 41 Table of Contents Consolidated comparison of the three and six months ended June 30, 2024 and 2023 Revenues The following table presents our consolidated revenues: For the three months ended June 30, Change For the six months ended June 30, Change (dollars in millions) 2024 2023 $ % 2024 2023 $ % Revenues Gaming $ 1,332.3 $ 1,292.8 $ 39.5 3.1 % $ 2,590.6 $ 2,617.4 $ (26.8) (1.0) % Food, beverage, hotel, and other 330.7 382.0 (51.3) (13.4) % 679.3 730.7 (51.4) (7.0) % Total revenues $ 1,663.0 $ 1,674.8 $ (11.8) (0.7) % $ 3,269.9 $ 3,348.1 $ (78.2) (2.3) % Gaming revenues for the three months ended June 30, 2024 increased by $39.5 million compared to the corresponding prior year period, primarily due to an increase in gaming revenues at our Interactive segment, an increase in slot revenues at our Northeast, Midwest, and West segments, partially offset by a decrease in gaming revenues at our South segment. In our Interactive segment, top-of-funnel growth, improved risk and trading execution, refined promotional strategies, and a favorable sportsbook hold contributed to the increase in gaming revenues. Gaming revenues for the six months ended June 30, 2024 decreased by $26.8 million compared to the corresponding prior year period, primarily due to a decrease in slots and table games revenues within our South segment partially offset by an increase in gaming revenues at our Interactive segment. In the first quarter of 2024, severe weather affected weekends and holidays across all our regional property segments negatively impacting our operations. Additionally, retail gaming revenues decreased as new supply continues to impact visitation in certain retail property segments . Food, beverage, hotel, and other revenues for the three and six months ended June 30, 2024 decreased by $51.3 million and $51.4 million , respectively, compared to the corresponding prior year periods. The decrease for both periods primarily relates to the inclusion of 100% of the operating results of Barstool subsequent to the Barstool Acquisition on February 17, 2023 in the prior year periods. Due to the August 2023 Barstool disposal, the current year periods do not include any Barstool revenues. For the six months ended June 30, 2024, this was offset by an increase in gaming tax amounts related to third-party online sports betting and/or iCasino partners for online sports betting and iCasino market access of $17.9 million compared to the prior year period. See “Segment comparison of the three and six months ended June 30, 2024 and 2023” below for more detailed explanations of the fluctuations in revenues. Operating expenses The following table presents our consolidated operating expenses: For the three months ended June 30, Change For the six months ended June 30, Change (dollars in millions) 2024 2023 $ % 2024 2023 $ % Operating expenses Gaming $ 871.1 $ 710.6 $ 160.5 22.6 % $ 1,750.6 $ 1,440.1 $ 310.5 21.6 % Food, beverage, hotel, and other 219.6 267.8 (48.2) (18.0) % 470.8 512.1 (41.3) (8.1) % General and administrative 388.7 380.3 8.4 2.2 % 777.6 773.2 4.4 0.6 % Depreciation and amortization 109.1 110.6 (1.5) (1.4) % 217.8 218.1 (0.3) (0.1) % Total operating expenses $ 1,588.5 $ 1,469.3 $ 119.2 8.1 % $ 3,216.8 $ 2,943.5 $ 273.3 9.3 % Gaming expenses consist primarily of gaming taxes, payroll, marketing and promotional, and other expenses associated with our gaming operations. Gaming expenses for the three and six months ended June 30, 2024 increased by $160.5 million and $310.5 million, respectively, compared to the corresponding prior year periods, primarily due to increased marketing expense within our Interactive segment related to ESPN and increased gaming costs driven by increased ESPN BET volumes. 42 Table of Contents Food, beverage, hotel, and other expenses consist primarily of payroll expenses, costs of goods sold, and other costs associated with our food, beverage, hotel, retail, racing, and Interactive operations. Fo od, beverage, hotel, and other expenses for the three and six months ended June 30, 2024 decreased $48.2 million and $41.3 million , respectively, compared to the corresponding prior year periods, primarily due to the inclusion of Barstool operating expenses in the prior year periods subsequent to the Barstool Acquisition on February 17, 2023. Due to the August 2023 Barstool disposal, the current year periods do not include any Barstool operating expenses. The decrease for the six months ended June 30, 2024 was partially offset by an increase in gaming tax reimbursement amounts related to third-party online sports betting and/or iCasino partners for online sports betting and iCasino market access. General and administrative expenses include items such as compliance, facility maintenance, utilities, property and liability insurance, surveillance and security, and lobbying expenses, as well as all expenses for administrative departments such as accounting, purchasing, human resources, legal and internal audit. General and administrative expenses also include stock-based compensation expense; pre-opening expenses; acquisition and transaction costs; gains and losses on disposal of assets; insurance recoveries, net of deductible charges; changes in the fair value of our contingent purchase price obligations; expense associated with cash-settled stock-based awards (including changes in fair value thereto); and rent expense associated with our triple net operating leases. For the three and six months ended June 30, 2024, general and administrative expenses increased by $8.4 million and $4.4 million, respectively, compared to the corresponding prior year periods, primarily due to increases in rent expense associated with triple net operating leases of $8.5 million and $17.3 million, respectively, stemming primarily from annual escalators on our triple net operating leases. For the six months ended June 30, 2024, the increase was offset by a decrease in stock-based compensation . Depreciation and amortization for the three and six months ended June 30, 2024 decreased $1.5 million and $0.3 million, respectively, compared to the corresponding prior year periods. Other income (expenses) The following table presents our consolidated other income (expenses): For the three months ended June 30, Change For the six months ended June 30, Change (dollars in millions) 2024 2023 $ % 2024 2023 $ % Other income (expenses) Interest expense, net $ (119.4) $ (115.6) $ (3.8) 3.3 % $ (238.5) $ (228.6) $ (9.9) 4.3 % Interest income $ 5.8 $ 9.9 $ (4.1) (41.4) % $ 12.9 $ 20.3 $ (7.4) (36.5) % Income from unconsolidated affiliates $ 7.8 $ 7.2 $ 0.6 8.3 % $ 15.0 $ 9.8 $ 5.2 53.1 % Gain on Barstool Acquisition, net $ — $ — $ — — % $ — $ 83.4 $ (83.4) N/M Gain on REIT transactions, net $ — $ — $ — — % $ — $ 500.8 $ (500.8) N/M Other $ 1.0 $ 5.8 $ (4.8) (82.8) % $ (0.3) $ 4.8 $ (5.1) N/M Income tax benefit (expense) $ 3.2 $ (34.7) $ 37.9 (109.2) % $ 15.8 $ (202.6) $ 218.4 (107.8) % N/M - Not meaningful Interest expense, net increased by $3.8 million and $9.9 million for the three and six months ended June 30, 2024, respectively, compared to the corresponding prior year periods, primarily due to an increase in interest expense on our Senior Secured Credit Facilities related to an overall increase in interest rates. Interest income decreased by $4.1 million and $7.4 million for the three and six months ended June 30, 2024, respectively, compared to the corresponding prior year periods, primarily due to a decrease in the amount invested in money market funds, which we use for short term investing. Income from unconsolidated affiliates relates principally to our investment in Kansas Entertainment and Freehold Raceway joint ventures. The increase of $0.6 million for the three months ended June 30, 2024, compared to the corresponding prior year period, is due to higher income earned from our investments in unconsolidated affiliates. The increase of $5.2 million for the six months ended June 30, 2024, compared to the corresponding prior year period, is due to the six months ended June 30, 2023 including a $5.1 million loss for Barstool prior to the Barstool Acquisition on February 17, 2023. 43 Table of Contents Gain on Barstool Acquisition, net for the six months ended June 30, 2023 relates to the gain on our acquisition of all the outstanding shares of Barstool common stock not already owned by us on February 17, 2023 as described in Note 5, “Acquisitions and Dispositions” in the notes to our unaudited Consolidated Financial Statements. The gain consisted of $66.5 million related to the remeasurement of our equity investment immediately prior to the acquisition date and $16.9 million related to the acquisition of the remaining 64% of Barstool common stock. Gain on REIT transactions, net for the six months ended June 30, 2023 relates to the execution of both the AR PENN Master Lease and 2023 Master Lease on February 21, 2023, which resulted in the (i) derecognition of $1.6 billion of financing obligations and (ii) derecognition of $1.1 billion of Property and Equipment, net. In conjunction with entering into the 2023 Master Lease, the individual triple net leases associated with Meadows and Perryville were terminated which resulted in a $6.5 million loss from the derecognition of right-of-use assets and lease liabilities. See Note 8, “Leases” to our unaudited Consolidated Financial Statements for additional details on both of these transactions. Other primarily relates to realized and unrealized gains and losses on equity securities, held by PENN Interactive, unrealized gains and losses related to certain Barstool shares (prior to the Barstool Acquisition on February 17, 2023) as well as miscellaneous income and expense items. Equity securities were provided to the Company in conjunction with entering into multi-year agreements with sports betting operators for online sports betting and iCasino market access across our portfolio. For the three and six months ended June 30, 2024, other income primarily consisted of dividend income received, partially offset by unrealized holding losses of $3.9 million and $5.4 million, respectively. For the three and six months ended June 30, 2023, other income primarily consisted of unrealized holding gains of $6.3 million and $3.1 million, respectively. Additionally, the six months ended June 30, 2023 included a $3.1 million gain related to remeasurement and settlement of Barstool put/call options prior to the Barstool Acquisition . Income tax benefit (expense) was a benefit of $3.2 million as compared to an expense of $34.7 million for the three months ended June 30, 2024 and 2023, respectively, and a benefit of $15.8 million as compared to an expense of $202.6 million for the six months ended June 30, 2024 and 2023, respectively. The effective tax rate (income taxes as a percentage of income from operations before income taxes) including discrete items was (91.0)% and 19.4% for the three and six months ended June 30, 2024. We excluded certain foreign losses from our worldwide effective tax rate calculation due to a year-to-date ordinary loss for which no benefit may be recognized. The effective tax rate for the three and six months ended June 30, 2024, was lower than the corresponding prior year period and the statutory federal tax rate of 21%, primarily due to (i) non-deductible permanent items offset against tax credit utilization, (ii) excluding certain foreign losses from our worldwide effective tax rate calculation for which no tax benefit may be recognized, (iii) state taxes, and (iv) changes to certain state valuation allowances. See Note 10, “Income Taxes” to our unaudited Consolidated Financial Statements for additional details. Our effective income tax rate can vary each reporting period depending on, among other factors, the geographic and business mix of our earnings, changes to our valuation allowances, and the level of our tax credits. Certain of these and other factors, including our history and projections of pre-tax earnings, are considered in assessing our ability to realize our net deferred tax assets. 44 Table of Contents Segment comparison of the three and six months ended June 30, 2024 and 2023 Northeast Segment For the three months ended June 30, Change For the six months ended June 30, Change (dollars in millions) 2024 2023 $ % 2024 2023 $ % Revenues Gaming $ 624.0 $ 616.5 $ 7.5 1.2 % $ 1,240.4 $ 1,245.8 $ (5.4) (0.4) % Food, beverage, hotel, and other 72.3 71.5 0.8 1.1 % 140.6 142.7 (2.1) (1.5) % Total revenues $ 696.3 $ 688.0 $ 8.3 1.2 % $ 1,381.0 $ 1,388.5 $ (7.5) (0.5) % Adjusted EBITDAR $ 204.7 $ 217.3 $ (12.6) (5.8) % $ 407.3 $ 430.2 $ (22.9) (5.3) % Adjusted EBITDAR margin 29.4 % 31.6 % -220 bps 29.5 % 31.0 % -150 bps The Northeast segment’s revenues for the three months ended June 30, 2024 increased $8.3 million, primarily due to an increase in gaming revenues, particularly slot revenues. The Northeast segment’s revenues for the six months ended June 30, 2024 decreased $7.5 million, primarily due to severe weather events during the first quarter negatively impacting our operations as well as decreases in gaming revenues at several of our properties due to increased competition, partially offset by increased slot revenues in the second quarter. Food and beverage revenues for the six months ended June 30, 2024 decreased as weather events during the first quarter resulted in a decline in visitation compared to the prior year period. For the three months ended June 30, 2024, the Northeast segment’s Adjusted EBITDAR decreased $12.6 million, and Ad justed EBITDAR margin decreased to 29.4%, primarily due to the reversal of certain accrued gaming taxes in the prior year quarter and increased labor and marketing costs in the current year quarter. For the six months ended June 30, 2024, the Northeast segment’s Adjusted EBITDAR decreased $22.9 million, primarily due to decreased gaming and non-gaming revenues. Ad justed EBITDAR margin decreased to 29.5% primarily due to the reversal of certain accrued gaming taxes in the prior year period and increased labor and marketing costs in the current year period. South Segment For the three months ended June 30, Change For the six months ended June 30, Change (dollars in millions) 2024 2023 $ % 2024 2023 $ % Revenues Gaming $ 230.2 $ 239.1 $ (8.9) (3.7) % $ 464.0 $ 491.2 $ (27.2) (5.5) % Food, beverage, hotel, and other 68.0 69.2 (1.2) (1.7) % 132.7 131.9 0.8 0.6 % Total revenues $ 298.2 $ 308.3 $ (10.1) (3.3) % $ 596.7 $ 623.1 $ (26.4) (4.2) % Adjusted EBITDAR $ 111.4 $ 120.9 $ (9.5) (7.9) % $ 224.9 $ 244.5 $ (19.6) (8.0) % Adjusted EBITDAR margin 37.4 % 39.2 % -180 bps 37.7 % 39.2 % -150 bps The South segment’s revenues for the three and six months ended June 30, 2024 decreased by $10.1 million and $26.4 million, respectively, compared to the corresponding prior year periods, primarily due to a decrease in gaming revenues as increased competition negatively impacted visitation at several of our properties and severe weather events in the first quarter of 2024 negatively impacted our operations. For the three and six months ended June 30, 2024, the South segment’s Adjusted EBITDAR decreased $9.5 million and $19.6 million, respectively, and Adjusted EBITDAR margin decreased to 37.4% and 37.7%, respectively, primarily due to the decrease in revenues as described above. 45 Table of Contents West Segment For the three months ended June 30, Change For the six months ended June 30, Change (dollars in millions) 2024 2023 $ % 2024 2023 $ % Revenues Gaming $ 94.5 $ 92.4 $ 2.1 2.3 % $ 186.1 $ 186.8 $ (0.7) (0.4) % Food, beverage, hotel, and other 40.8 37.6 3.2 8.5 % 78.0 72.9 5.1 7.0 % Total revenues $ 135.3 $ 130.0 $ 5.3 4.1 % $ 264.1 $ 259.7 $ 4.4 1.7 % Adjusted EBITDAR $ 50.6 $ 49.6 $ 1.0 2.0 % $ 96.5 $ 98.7 $ (2.2) (2.2) % Adjusted EBITDAR margin 37.4 % 38.2 % -80 bps 36.5 % 38.0 % -150 bps The West segment’s revenues for the three months ended June 30, 2024 increased by $5.3 million, compared to the prior year period, primarily due to increased visitation at our West segment properties. The West segment’s revenues for the six months ended June 30, 2024 increased by $4.4 million, compared to the prior year period, primarily due to an increase in hotel and food and beverage revenues, partially offset by a decrease in gaming revenues as isolated weather events negatively impacted visitation during the first quarter of 2024 . For the three months ended June 30, 2024, the West segment’s Adjusted EBITDAR increased $1.0 million due to the increase in hotel and food and beverage revenues, while Adjusted EBITDAR margin decreased to 37.4%, primarily due to increased labor costs. For the six months ended June 30, 2024, the West segment’s Adjusted EBITDAR decreased $2.2 million and Adjusted EBITDAR margin decreased to 36.5%, primarily due to the decrease in gaming revenues discussed above and increased labor costs. Midwest Segment For the three months ended June 30, Change For the six months ended June 30, Change (dollars in millions) 2024 2023 $ % 2024 2023 $ % Revenues Gaming $ 265.1 $ 261.5 $ 3.6 1.4 % $ 525.6 $ 527.4 $ (1.8) (0.3) % Food, beverage, hotel, and other 33.0 31.8 1.2 3.8 % 63.7 61.2 2.5 4.1 % Total revenues $ 298.1 $ 293.3 $ 4.8 1.6 % $ 589.3 $ 588.6 $ 0.7 0.1 % Adjusted EBITDAR $ 129.9 $ 127.1 $ 2.8 2.2 % $ 246.9 $ 252.7 $ (5.8) (2.3) % Adjusted EBITDAR margin 43.6 % 43.3 % 30 bps 41.9 % 42.9 % -100 bps The Midwest segment’s revenues for the three months ended June 30, 2024 increased by $4.8 million, compared to the prior year period, due to increased visitation at our Midwest segment properties. The Midwest segment’s revenues for the six months ended June 30, 2024 increased by $0.7 million, compared to the prior year period, primarily due to an increase in hotel and food and beverage revenues in the current year period, partially offset by a decrease in gaming revenues during the first quarter of 2024 as severe weather events negatively impacted visitation . For the three months ended June 30, 2024, the Midwest segment’s Adjusted EBITDAR increased $2.8 million and A djusted EBITDAR margin increased to 43.6% , primarily due to the increase in revenues discussed above. For the six months ended June 30, 2024, the Midwest segment’s Adjusted EBITDAR decreased $5.8 million and A djusted EBITDAR margin decreased to 41.9%, primarily due to the decrease in gaming revenues discussed above, increased labor costs and an increase in general and administrative costs. 46 Table of Contents Interactive Segment For the three months ended June 30, Change For the six months ended June 30, Change (dollars in millions) 2024 2023 $ % 2024 2023 $ % Revenues Gaming $ 118.5 $ 83.3 $ 35.2 42.3 % $ 174.5 $ 166.2 $ 8.3 5.0 % Food, beverage, hotel, and other 114.1 174.2 (60.1) (34.5) % 265.8 324.8 (59.0) (18.2) % Total revenues $ 232.6 $ 257.5 $ (24.9) (9.7) % $ 440.3 $ 491.0 $ (50.7) (10.3) % Adjusted EBITDAR $ (102.8) $ (12.8) $ (90.0) N/M $ (298.8) $ (18.5) $ (280.3) N/M Adjusted EBITDAR margin (44.2) % (5.0) % N/M (67.9) % (3.8) % N/M N/M - Not meaningful The Interactive segment’s revenues for the three and six months ended June 30, 2024 decreased by $24.9 million and $50.7 million, respectively, compared to the corresponding prior year periods, primarily due to decreases in food, beverage, hotel, and other revenues, partially offset by increases in gaming revenues. Gaming revenues, particularly during the three months ended June 30, 2024, were positively impacted by top-of-funnel growth, improved risk and trading execution, refined promotional strategies, and favorable sports betting hold rates. The decreases in food, beverage, hotel, and other revenues, primarily relate to $52.7 million and $80.9 million of Barstool revenues subsequent to the Barstool Acquisition on February 17, 2023 being included in the three and six months ended June 30, 2023, respectively. Due to the August 2023 Barstool disposal, the current year periods do not include any Barstool operating results. Furthermore, food, beverage, hotel, and other revenues are inclusive of gaming tax amounts related to third-party online sports betting and/or iCasino partners for online sports betting and iCasino market access of $82.1 million and $88.5 million for the three months ended June 30, 2024 and 2023, respectively, and $198.7 million and $180.8 million for the six months ended June 30, 2024 and 2023, respectively. For the three and six months ended June 30, 2024, the Interactive segment’s Adjusted EBITDAR and Adjusted EBITDAR margin decreased primarily due to the decrease in food, beverage, hotel, and other revenues as discussed above as well as an increase in marketing expense due to the continued promotion of ESPN BET. Other For the three months ended June 30, Change For the six months ended June 30, Change (dollars in millions) 2024 2023 $ % 2024 2023 $ % Revenues Food, beverage, and other $ 5.9 $ 6.2 $ (0.3) (4.8) % $ 11.9 $ 12.0 $ (0.1) (0.8) % Total revenues $ 5.9 $ 6.2 $ (0.3) (4.8) % $ 11.9 $ 12.0 $ (0.1) (0.8) % Adjusted EBITDAR $ (26.8) $ (25.3) $ (1.5) 5.9 % $ (53.6) $ (52.6) $ (1.0) 1.9 % Other consists of the Company’s stand-alone racing operations, as well as corporate overhead costs, which primarily includes certain expenses such as payroll, professional fees, travel expenses, and other general and administrative expenses that do not directly relate to or have not otherwise been allocated. Revenues for the three and six months ended June 30, 2024 decreased slightly compared to the prior ye ar periods, primarily due to fluctuations in racing revenues. Corporate overhead costs were $24.5 million and $24.8 million for the three months ended June 30, 2024 and 2023, respectively, as compared to $49.4 million and $51.1 million for the six months ended June 30, 2024 and 2023, respectively. Changes in Adjusted EBITDAR for the three and six months ended June 30, 2024 primarily relate to higher labor costs, slightly offset by a decrease in general and administrative costs. 47 Table of Contents Non-GAAP Financial Measures Use and Definitions In addition to GAAP financial measures, management uses Adjusted EBITDA, Adjusted EBITDAR, Adjusted EBITDA margin, and Adjusted EBITDAR margin as non-GAAP financial measures. These non-GAAP financial measures should not be considered a substitute for, nor superior to, financial results and measures determined or calculated in accordance with GAAP. Each of these non-GAAP financial measures is not calculated in the same manner by all companies and, accordingly, may not be an appropriate measure of comparing performance among different companies. We define Adjusted EBITDA as earnings before interest expense, net; interest income; income taxes; depreciation and amortization; stock-based compensation; debt extinguishment charges; impairment losses; insurance recoveries, net of deductible charges; changes in the estimated fair value of our contingent purchase price obligations; gain or loss on disposal of assets; the difference between budget and actual expense for cash-settled stock-based awards; pre-opening expenses; loss on disposal of business; non-cash gains/losses associated with REIT transactions as described in Note 8, “Leases” to our unaudited Consolidated Financial Statements; non-cash gains/losses associated with partial and step acquisitions as measured in accordance with ASC Topic 805, “Business Combinations”; and other. Adjusted EBITDA is inclusive of income or loss from unconsolidated affiliates, with our share of non-operating items (such as interest expense, net; income taxes; depreciation and amortization; and stock-based compensation expense) added back for Barstool Sports, Inc. (prior to our acquisition of the remaining 64% of Barstool common stock on February 17, 2023) and our Kansas Entertainment, LLC joint venture. Adjusted EBITDA is inclusive of rent expense associated with our triple net operating leases with our REIT landlords. Although Adjusted EBITDA includes rent expense associated with our triple net operating leases, we believe Adjusted EBITDA is useful as a supplemental measure in evaluating the performance of our consolidated results of operations. We define Adjusted EBITDA margin as Adjusted EBITDA divided by consolidated revenues. Adjusted EBITDA has economic substance because it is used by management as a performance measure to analyze the performance of our business, and is especially relevant in evaluating large, long-lived casino-hotel projects because it provides a perspective on the current effects of operating decisions separated from the substantial non-operational depreciation charges and financing costs of such projects. We present Adjusted EBITDA because it is used by some investors and creditors as an indicator of the strength and performance of ongoing business operations, including our ability to service debt, and to fund capital expenditures, acquisitions and operations. These calculations are commonly used as a basis for investors, analysts and credit rating agencies to evaluate and compare operating performance and value companies within our industry. In order to view the operations of their casinos on a more stand-alone basis, gaming companies, including us, have historically excluded from their Adjusted EBITDA calculations certain corporate expenses that do not relate to the management of specific casino properties. However, Adjusted EBITDA is not a measure of performance or liquidity calculated in accordance with GAAP. Adjusted EBITDA information is presented as a supplemental disclosure, as management believes that it is a commonly used measure of performance in the gaming industry and that it is considered by many to be a key indicator of the Company’s operating results. We define Adjusted EBITDAR as Adjusted EBITDA (as defined above) plus rent expense associated with triple net operating leases (which is a normal, recurring cash operating expense necessary to operate our business). Adjusted EBITDAR is presented on a consolidated basis outside the financial statements solely as a valuation metric. Management believes that Adjusted EBITDAR is an additional metric traditionally used by analysts in valuing gaming companies subject to triple net leases since it eliminates the effects of variability in leasing methods and capital structures. This metric is included as a supplemental disclosure because (i) we believe Adjusted EBITDAR is traditionally used by gaming operator analysts and investors to determine the equity value of gaming operators and (ii) Adjusted EBITDAR is one of the metrics used by other financial analysts in valuing our business. We believe Adjusted EBITDAR is useful for equity valuation purposes because (i) its calculation isolates the effects of financing real estate; and (ii) using a multiple of Adjusted EBITDAR to calculate enterprise value allows for an adjustment to the balance sheet to recognize estimated liabilities arising from operating leases related to real estate. However, Adjusted EBITDAR when presented on a consolidated basis is not a financial measure in accordance with GAAP, and should not be viewed as a measure of overall operating performance or considered in isolation or as an alternative to net income because it excludes the rent expense associated with our triple net operating leases and is provided for the limited purposes referenced herein. Adjusted EBITDAR margin is defined as Adjusted EBITDAR on a consolidated basis divided by revenues on a consolidated basis. Adjusted EBITDAR margin is presented on a consolidated basis outside the financial statements solely as a valuation metric. We further define Adjusted EBITDAR margin by reportable segment as Adjusted EBITDAR for each segment divided by segment revenues. 48 Table of Contents Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures The following table includes a reconciliation of net income (loss), which is determined in accordance with GAAP, to Adjusted EBITDA and Adjusted EBITDAR, which are non-GAAP financial measures, as well as related margins: For the three months ended June 30, For the six months ended June 30, (dollars in millions) 2024 2023 2024 2023 Net income (loss) $ (27.1) $ 78.1 $ (142.0) $ 592.5 Income tax (benefit) expense (3.2) 34.7 (15.8) 202.6 Interest expense, net 119.4 115.6 238.5 228.6 Interest income (5.8) (9.9) (12.9) (20.3) Income from unconsolidated affiliates (7.8) (7.2) (15.0) (9.8) Gain on Barstool Acquisition, net — — — (83.4) Gain on REIT transactions, net — — — (500.8) Other (1.0) (5.8) 0.3 (4.8) Operating income 74.5 205.5 53.1 404.6 Stock-based compensation (1) 14.2 19.7 26.1 36.2 Cash-settled stock-based award variance (1)(2) (3.1) (6.2) (11.1) (9.1) Loss on disposal of assets (1) 9.1 — 8.9 — Contingent purchase price (1) — 0.2 — 0.5 Depreciation and amortization 109.1 110.6 217.8 218.1 Insurance recoveries, net of deductible charges (1) (2.7) (13.6) (2.7) (13.6) Income from unconsolidated affiliates 7.8 7.2 15.0 9.8 Non-operating items of equity method investments (3) 1.0 0.9 2.1 5.4 Other expenses (1)(4) 2.2 6.1 4.3 10.7 Adjusted EBITDA 212.1 330.4 313.5 662.6 Rent expense associated with triple net operating leases (1) 154.9 146.4 309.7 292.4 Adjusted EBITDAR $ 367.0 $ 476.8 $ 623.2 $ 955.0 Net income (loss) margin (1.6) % 4.7 % (4.3) % 17.7 % Adjusted EBITDA margin 12.8 % 19.7 % 9.6 % 19.8 % Adjusted EBITDAR margin 22.1 % 28.5 % 19.1 % 28.5 % ( 1) These items are included in “General and administrative” within the Company’s unaudited Consolidated Statements of Operations. (2) Our cash-settled stock-based awards are adjusted to fair value each reporting period based primarily on the price of the Company’s common stock. As such, significant fluctuations in the price of the Company’s common stock during any reporting period could cause significant variances to budget on cash-settled stock-based awards. (3) Consists principally of interest expense, net, income taxes, depreciation and amortization, and stock-based compensation expense associated with Barstool prior to us acquiring the remaining 64% of Barstool common stock (see Note 5, “Acquisitions and Dispositions” in the notes to our unaudited Consolidated Financial Statements), and our Kansas Entertainment joint venture. (4) Consists of non-recurring acquisition and transaction costs, and finance transformation costs associated with the implementation of our new Enterprise Resource Management system. 49 Table of Contents LIQUIDITY AND CAPITAL RESOURCES Our primary sources of liquidity and capital resources have been and are expected to be cash flow from operations, borrowings from banks, and proceeds from the issuance of debt and equity securities. Our ongoing liquidity will depend on a number of factors, including available cash resources, cash flow from operations, acquisitions or investments, funding of construction for development projects, and our compliance with covenants contained under our debt agreements. For the six months ended June 30, Change (dollars in millions) 2024 2023 $ % Net cash provided by operating activities $ 81.7 $ 323.7 $ (242.0) (74.8) % Net cash used in investing activities $ (146.1) $ (462.9) $ 316.8 (68.4) % Net cash used in financing activities $ (128.6) $ (214.1) $ 85.5 (39.9) % Operating Cash Flow Trends in our operating cash flows tend to follow trends in operating income, excluding non-cash charges, but can be affected by changes in working capital, the timing of significant interest payments, tax payments or refunds, and distributions from unconsolidated affiliates. Net cash provided by operating activities decreased by $242.0 million for the six months ended June 30, 2024, primarily due to a decrease in earnings. Investing Cash Flow Cash used in investing activities for the six months ended June 30, 2024, of $146.1 million, primarily relates to capital expenditures of $129.6 million. For the six months ended June 30, 2023, cash used in investing activities of $462.9 million was primarily related to consideration paid for the Barstool Acquisition, net of cash acquired, of $314.6 million and capital expenditures of $132.8 million. Capital Expenditures Capital expenditures are accounted for as either project capital (new facilities or expansions) or maintenance (replacement) which is inclusive of projects such as our retail sportsbooks, our cashless, cardless and contactless technology and hotel renovations. Cash provided by operating activities, as well as cash available under our Amended Revolving Credit Facility, was available to fund our capital expenditures for the six months ended June 30, 2024 and 2023, as applicable. Capital expenditures for the six months ended June 30, 2024 and 2023, were $129.6 million and $132.8 million, respectively. For the year ending December 31, 2024 , our anticipated capital expenditures, inclusive of insurance proceeds, are approximately $225.0 million, which include capital expenditures of $67.7 million, incurred for the six months ended June 30, 2024 and capital expenditures required under our Triple Net Leases, which require us to spend a specified percentage of total revenues. Additionally f or the year ending December 31, 2024 , we anticipate capital project expenditures of $275.6 million in connection with the PENN Development Projects as a result of our Master Development Agreement with GLPI (as described in Note 8, “Leases” in the notes to our unaudited Consolidated Financial Statements), which include capital expenditures of $61.9 million for the six months ended June 30, 2024. The Master Development Agreement provides that GLPI will fund up to $225.0 million for the Aurora Project and, upon PENN’s request, up to $350.0 million in the aggregate for the Other Development Projects, in accordance with certain terms and conditions set forth in the Master Development Agreement. Financing Cash Flow For the six months ended June 30, 2024, net cash used in financing activities totaled $128.6 million, primarily related to principal payments of $45.0 million on our finance leases and financing obligations, $17.5 million in payments on insurance financing, as well as $18.8 million in principal payments on long-term debt. For the six months ended June 30, 2023, net cash used in financing activities totaled $214.1 million, primarily related to repurchases of our common stock of $149.8 million, as well as $42.7 million in principal payments on our finance leases and financing obligations and debt repayments of $18.8 million. 50 Table of Contents As of June 30, 2024, we had $2.8 billion in aggregate principal amount of indebtedness, including $1.5 billion outstanding under our Amended Credit Facilities (as defined in Note 7, “Long-term Debt” in the notes to our unaudited Consolidated Financial Statements), $400.0 million outstanding under our 5.625% Notes due 2027 (the “5.625% Notes”), $400.0 million outstanding under our 4.125% Notes due 2029 (the “4.125% Notes”), $330.5 million outstanding under our 2.75% Convertible Notes due 2026, and $185.4 million outstanding in other long-term obligations. No amounts were drawn on our Amended Revolving Credit Facility (as defined in Note 7, “Long-term Debt” in the notes to our unaudited Consolidated Financial Statements). We have no debt maturing prior to 2026. As of June 30, 2024, we had conditional obligations under letters of credit issued pursuant to the Amended Credit Facilities with face amounts aggregating to $20.9 million resulting in $979.1 million available borrowing capacity under our Amended Revolving Credit Facility. Covenants Our Amended Credit Facilities, 5.625% Notes, and 4.125% Notes require us, among other obligations, to maintain specified financial ratios and to satisfy certain financial tests. In addition, our Amended Credit Facilities, 5.625% Notes, and 4.125% Notes, restrict, among other things, our ability to incur additional indebtedness, incur guarantee obligations, amend debt instruments, pay dividends, create liens on assets, make investments, engage in mergers or consolidations, and otherwise restrict corporate activities. Our debt agreements also contain customary events of default, including cross-default provisions that require us to meet certain requirements under the AR PENN Master Lease, the 2023 Master Lease, and the Pinnacle Master Lease (all of which are defined below), each with GLPI. If we are unable to meet our financial covenants or in the event of a cross-default, it could trigger an acceleration of payment terms. On February 15, 2024 (the “Amendment Effective Date”), PENN entered into a First Amendment (the “Amendment Agreement”) with its various lenders amending its Amended Credit Facilities (as amended, amended and restated, supplemented, or otherwise modified from time to time prior to the Amendment Effective Date, the “Existing Credit Agreement”). The Amendment Agreement amends the Existing Credit Agreement to provide that, during the period beginning on the Amendment Effective Date and ending on the earlier of (i) the date that is two business days after the date on which the Company delivers a covenant relief period termination notice to the administrative agent and (ii) the date on which the administrative agent receives a compliance certificate for the quarter ending December 31, 2024 (the “Covenant Relief Period”), the Company will make an adjustment to exclude specified amounts of Interactive segment Adjusted EBITDAR (as defined in Note 15, “Segment Information” in the notes to our unaudited Consolidated Financial Statements ) in its calculations to comply with the maximum total net leverage ratio or minimum interest coverage ratio (as such terms are defined in the Second Amended and Restated Credit Agreement). We will continue to be required to maintain specified financial ratios and to satisfy certain financial tests when our Covenant Relief Period terminates after December 31, 2024. As of June 30, 2024, the Company was in compliance with all required financial covenants. The Company believes that it will remain in compliance with all of its required financial covenants for at least the next twelve months following the date of filing this Quarterly Report on Form 10-Q with the SEC. See Note 7, “Long-term Debt” in the notes to our unaudited Consolidated Financial Statements for additional information of the Company’s debt and other long-term obligations. Share Repurchase Authorization On December 6, 2022, the Board of Directors approved a share repurchase authorization for $750.0 million (the “December 2022 Authorization”). The December 2022 Authorization expires on December 31, 2025. The Company utilized the capacity under the previous February 2022 authorization prior to effecting any repurchases under the December 2022 Authorization. Repurchases by the Company are subject to available liquidity, general market and economic conditions, alternate uses for the capital and other factors. Share repurchases may be made from time to time through a Rule 10b5-1 trading plan, open market transactions, block trades or in private transactions in accordance with applicable securities laws and regulations and other legal requirements. There is no minimum number of shares that the Company is required to repurchase and the repurchase authorization may be suspended or discontinued at any time without prior notice. No shares of the Company’s common stock were repurchased during the six months ended June 30, 2024. During the six months ended June 30, 2023, the Company repurchased 5,438,221 shares of its common stock in open market transactions for $149.8 million, at an average price of $27.54 per share under the February 2022 and December 2022 Authorizations. The cost of all repurchased shares is recorded as “Treasury stock” within our unaudited Consolidated Balance Sheets. 51 Table of Contents No shares of the Company’s common stock were repurchased subsequent to the quarter ended June 30, 2024. As of August 7, 2024, the remaining availability under our December 2022 Authorization was $749.5 million. Other Factors Affecting Liquidity ESPN Bet Sportsbook Agreement On August 8, 2023, PENN entered into the Sportsbook Agreement with ESPN which provides for a long-term strategic relationship between PENN and ESPN relating to online sports betting in the United States. In November 2023, the existing Barstool Sportsbook was rebranded and launched across all online platforms in the United States as ESPN BET, and our online product includes a Hollywood Casino-branded integrated iCasino offering within the sportsbook app where permitted. The Sportsbook Agreement has an initial 10-year term and may be extended for an additional ten years upon mutual agreement of PENN and ESPN. In consideration for the media marketing services and brand and other rights provided by ESPN, PENN will pay $150.0 million per year in cash pursuant to the Sportsbook Agreement for the initial 10-year term and issue warrants pursuant to the Investment Agreement (see Note 11, “Commitments and Contingencies” in the notes to our unaudited Consolidated Financial Statements for additional information). Triple Net Leases The majority of the real estate assets (i.e., land and buildings) used in our operations are subject to triple net master leases; the most significant of which are the AR PENN Master Lease, 2023 Master Lease, and Pinnacle Master Lease (as such terms are defined in Note 8, “Leases” in the notes to our unaudited Consolidated Financial Statements, and collectively referred to as the “Master Leases”), with GLPI. We refer to the Master Leases, the Margaritaville Lease, the Greektown Lease, and the Morgantown Lease, collectively, as our “Triple Net Leases”. The Company’s Triple Net Leases are accounted for as either operating leases, finance leases, or financing obligations. On February 21, 2023, as described in Note 8, “Leases” in the notes to our unaudited Consolidated Financial Statements, the Company and GLPI entered into the AR PENN Master Lease, effective January 1, 2023, to (i) remove the land and buildings for Aurora, Joliet, Columbus, Toledo and the M Resort, and (ii) make associated adjustments to the rent after which the initial rent in the AR PENN Master Lease was reset to $284.1 million, consisting of $208.2 million of building base rent, $43.0 million of land base rent and $32.9 million of percentage rent (as such terms are defined in the AR PENN Master Lease). The AR PENN Master Lease remains subject to annual rent escalators and a percentage rent reset every five years. Concurrent with the execution of the AR PENN Master Lease, the Company and GLPI entered into the 2023 Master Lease, effective January 1, 2023, specific to the properties associated with Aurora, Joliet, Columbus, Toledo, M Resort, Meadows, and Perryville and the Master Development Agreement. The 2023 Master Lease terminated the individual triple net leases associated with Meadows and Perryville. The 2023 Master Lease incurs a 1.5% fixed escalator on November 1 of each year, and is also subject to a one-time increase of $1.4 million effective November 1, 2027. The 2023 Master Lease and AR PENN Master Lease are cross-defaulted, cross-collateralized, coterminous, and subject to a parent guarantee. The 2023 Master Lease includes the 2023 Master Lease Base Rent equal to $232.2 million and the Master Development Agreement contains additional rent (together with the 2023 Master Lease Base Rent, the “2023 Master Lease Rent”) equal to (i) 7.75% of any project funding received by PENN from GLPI for the Aurora Project and (ii) a percentage, based on the then-current GLPI stock price, of any project funding received by PENN from GLPI for the Other Development Projects. The Master Development Agreement provides that GLPI will fund up to $225 million for the Aurora Project and, upon PENN’s request, up to $350 million in the aggregate for the Other Development Projects, in accordance with certain terms and conditions set forth in the Master Development Agreement. These funding obligations of GLPI expire on January 1, 2026. The PENN Development Projects have all commenced and are anticipated to open by the first half of 2026. Under our Triple Net Leases, in addition to lease payments for the real estate assets, we are required to pay the following, among other things: (i) all facility maintenance; (ii) all insurance required in connection with the leased properties and the business conducted on the leased properties; (iii) taxes levied on or with respect to the leased properties (other than taxes on the income of the lessor); (iv) all tenant capital improvements; and (v) all utilities and other services necessary or appropriate for the leased properties and the business conducted on the leased properties. Additionally, our Triple Net Leases are subject to annual escalators and periodic percentage rent resets, as applicable. See Note 8, “Leases” in the notes to our unaudited Consolidated Financial Statements for further discussion and disclosure related to the Company’s leases. 52 Table of Contents Payments to our REIT Landlords under Triple Net Leases Total payments made to our REIT Landlords, GLPI and VICI, were as follows: For the three months ended June 30, For the six months ended June 30, (in millions) 2024 2023 2024 2023 AR PENN Master Lease $ 70.9 $ 70.9 $ 141.9 $ 142.0 2023 Master Lease 58.9 58.1 117.8 116.1 Pinnacle Master Lease 86.7 84.8 171.9 168.9 Margaritaville Lease 6.7 6.6 13.4 13.0 Greektown Lease 13.2 13.0 26.4 25.8 Morgantown Lease 0.8 0.8 1.6 1.6 Total $ 237.2 $ 234.2 $ 473.0 $ 467.4 Outlook Based on our current level of operations, we believe that cash generated from operations and cash on hand, together with amounts available under our Amended Credit Facilities, will be adequate to meet our anticipated obligations under our Triple Net Leases, debt service requirements, capital expenditures and working capital needs for the foreseeable future. However, our ability to generate sufficient cash flow from operations will depend on a range of economic, competitive, and business factors, many of which are outside our control. We cannot be certain: (i) of the impact of global supply chain disruptions, price inflation, rising interest rates on the U.S. economy, slowing economic growth, and geopolitical uncertainty; (ii) that our anticipated earnings projections will be realized; (iii) that we will achieve the expected synergies from our acquisitions; (iv) that we will achieve the anticipated financial returns from our strategic initiatives, including, but not limited to, our Sportsbook Agreement with ESPN and the PENN Development Projects; (v) and that future borrowings will be available under our Amended Credit Facilities or otherwise will be available in the credit markets to enable us to service our indebtedness or to make anticipated capital expenditures. We caution that the performance and trends seen across our portfolio may not continue. In addition, while we anticipated that a significant amount of our future growth would come through the pursuit of opportunities within other distribution channels, such as media, retail and online sports betting, iCasino, and social gaming; from acquisitions of gaming properties at reasonable valuations; greenfield projects; development projects; and jurisdictional expansions and property expansion in under-penetrated markets; there can be no assurance that this will be the case. If we consummate significant acquisitions in the future or undertake any significant property expansions, our cash requirements may increase significantly and we may need to make additional borrowings or complete equity or debt financings to meet these requirements. See Part I, Item 1A. “Risk Factors” of the Company’s Form 10-K for the year ended December 31, 2023 for a discussion of additional risks related to the Company’s capital structure. We have historically maintained a capital structure comprised of a mix of equity and debt financing. We vary our leverage to pursue opportunities in the marketplace in an effort to maximize our enterprise value for our shareholders. We expect to meet our debt obligations as they come due through internally-generated funds from operations and/or refinancing them through the debt or equity markets prior to their maturity. CRITICAL ACCOUNTING ESTIMATES A complete discussion of our critical accounting estimates is included in our Form 10-K for the year ended December 31, 2023. There have been no significant changes in our critical accounting estimates during the six months ended June 30, 2024. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS For information with respect to new accounting pronouncements and the impact of these pronouncements on our unaudited Consolidated Financial Statements, see Note 3, “New Accounting Pronouncements” in the notes to our unaudited Consolidated Financial Statements. 53 Table of Contents IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the use of forward-looking terminology such as “expects,” “believes,” “estimates,” “projects,” “intends,” “plans,” “goal,” “seeks,” “may,” “will,” “should,” or “anticipates” or the negative or other variations of these or similar words, or by discussions of future events, strategies or risks and uncertainties. Specifically, forward-looking statements include, but are not limited to, statements regarding: the Company’s expectations of future results of operations and financial condition; the assumptions provided regarding the guidance, including the scale and timing of the Company’s product and technology investments; the Company’s expectations regarding results and customer growth and the impact of competition in retail/mobile/online sportsbooks, iCasino, social gaming, and retail operations; the Company’s development and launch of its Interactive segment’s products in new jurisdictions and enhancements to existing Interactive segment products, including the content for the ESPN BET and theScore BET and the further development of ESPN BET and theScore BET on our proprietary player account management system and risk and trading platforms; the benefits of the Sportsbook Agreement between the Company and ESPN; the Company’s expectations regarding its Sportsbook Agreement with ESPN and the future success of ESPN BET; the Company’s expectations with respect to the integration and synergies related to the Company’s integration of theScore and the continued growth and monetization of the Company’s media business; the Company’s expectations that its portfolio of assets provides a benefit of geographically-diversified cash flows from operations; the Company’s plan to expand gaming operations through the implementation and execution of a disciplined capital expenditure program at our existing properties, the pursuit of strategic acquisitions and investments, and the development of new gaming properties, including the PENN Development Projects; improvements, expansions, or relocations of our existing properties; entrance into new jurisdictions; expansion of gaming in existing jurisdictions; strategic investments and acquisitions; cross-sell opportunities between our retail gaming, online sports betting, and iCasino businesses; our ability to obtain financing for our development projects on attractive terms; the timing, cost and expected impact of planned capital expenditures on the Company’s results of operations; our expectation that the Company will remain in compliance with all of its required financial covenants for at least the next twelve months following the date of filing this Quarterly Report on Form 10-Q with the SEC; our expectation that, based on our current level of operations, cash generated from operations and cash on hand, together with amounts available under our Amended Credit Facilities, will be adequate to meet our anticipated obligations under our Triple Net Leases, debt service requirements, capital expenditures and working capital needs for the foreseeable future; the actions of regulatory, legislative, executive, or judicial decisions at the federal, state, provincial, or local level with regard to our business and the impact of any such actions; the anticipated impact of accounting pronouncements; settlement costs relating to Barstool SPA indemnification obligations. Such statements are all subject to risks, uncertainties and changes in circumstances that could significantly affect the Company’s future financial results and business. Accordingly, the Company cautions that the forward-looking statements contained herein are qualified by important factors that could cause actual results to differ materially from those reflected by such statements. Such factors include: the effects of economic and market conditions in the markets in which the Company operates or otherwise, including the impact of global supply chain disruptions, price inflation, rising interest rates, slowing economic growth, and geopolitical uncertainty; competition with other entertainment, sports content, and gaming experiences; the timing, cost and expected impact of product and technology investments; risks relating to operations, permits, licenses, financings, approvals and other contingencies in connection with growth in new or existing jurisdictions; the Company may not be able to achieve the anticipated financial returns from the Sportsbook Agreement with ESPN, including due to fees, costs, taxes or circumstances beyond the Company’s or ESPN’s control; the Company may not achieve expected synergies from acquisitions; future borrowings may not be available under our Amended Credit Facilities and capital may not be otherwise available to enable us to service our indebtedness, make anticipated capital expenditures or pay off or refinance our indebtedness prior to maturity; the impact of indemnification obligations under the Barstool SPA; the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the Company and ESPN to terminate the Sportsbook Agreement between the companies; the ability of the Company and ESPN to agree to extend the initial 10-year term of the Sportsbook Agreement on mutually satisfactory terms, if at all, and the costs and obligations of such terms if agreed; the outcome of any legal proceedings that may be instituted against the Company, ESPN or their respective directors, officers or employees; the ability of the Company or ESPN to retain and hire key personnel; the impact of new or changes in current laws, regulations, rules or other industry standards; and additional risks and uncertainties described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, each as filed with the U.S. Securities and Exchange Commission. The Company does not intend to update publicly any forward-looking statements except as required by law. Considering these risks, uncertainties and assumptions, the forward-looking events discussed in this Quarterly Report on Form 10-Q may not occur. 54 Table of Contents